Business Context and Reporting Period
Company: J.W. Mays, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: October 31, 2009
Business Overview: The Company operates as a real estate enterprise, deriving revenue primarily from rental income across properties in New York (Brooklyn, Jamaica, Fishkill) and Massapequa. The Company discontinued its retail department store segment in 1989.
Key Financial Metrics
| Metric | Three Months Ended Oct 31, 2009 | Three Months Ended Oct 31, 2008 |
|---|---|---|
| Total Revenues | $4,225,634 | $3,922,846 |
| Net Income | $298,454 | $60,338 |
| Earnings Per Share (EPS) | $0.15 | $0.03 |
| Operating Cash Flow | $1,416,076 | $1,330,377 |
| Cash and Cash Equivalents (End of Period) | $2,229,786 | $1,981,103 |
| Total Assets | $56,164,308 | $55,707,370 |
| Total Liabilities | $15,530,450 | $15,421,405 |
| Long-Term Debt | $11,141,354 | $10,368,681 |
Margins: Operating income margin was approximately 14.2% ($598,988 / $4,225,634). Net profit margin was approximately 7.1%.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by $302,788 (7.7%) compared to the prior year quarter. This was driven by leasing to an additional tenant at the Brooklyn property and a one-time recovery of real estate taxes of $114,251.
- Profitability Surge: Net income increased significantly by $238,116 (395%). This improvement is largely attributable to the absence of a $99,976 impairment loss on Lehman Brothers Holdings Inc. preferred stock recorded in the comparable 2008 period.
- Expense Trends: Real estate operating expenses increased by $97,412 due to higher rental expenses and taxes, partially offset by lower maintenance and utility costs. Administrative expenses remained relatively flat.
- Liquidity Improvement: Cash and cash equivalents increased by $1,576,067 during the quarter, bolstered by strong operating cash flows and a $850,000 drawdown on a term loan.
Outlook, Risks, and Contingencies
Management Commentary & Outlook: Management considers current working capital and borrowing capabilities adequate. The Company is actively seeking tenants for 26,110 square feet of retail space vacated at the Jowein building in October 2009, representing an annual rental income loss of approximately $400,000. A new lease with a drive-in restaurant at the Massapequa premises is expected to commence rent in late 2010, offsetting previous losses.
Material Risks and Contingencies:
- Tenant Bankruptcy: A tenant at the Bond Street building filed for Chapter 11 protection on August 12, 2009. This tenant represents 1.66% of projected annual income. If the lease is rejected, cash flows could be adversely affected by approximately $23,000 per month.
- Lease Termination Litigation: The Company is involved in litigation regarding the termination of its tenancy at the Jowein building. A preliminary injunction prevents eviction, but the trial date has been adjourned. If the lease is not renewed, the Company estimates costs to separate the building between $700,000 and $1,200,000.
- Debt Structure: The Company holds $10.9 million in fixed-rate debt and $200,000 in variable-rate debt. A 100 basis point increase in interest rates would decrease net income by approximately $2,000.
Investor Verification Checklist
- Lease Renewal Status: Verify the outcome of the Jowein building lease litigation and the potential $700k-$1.2M exit cost.
- Tenant Vacancy: Monitor the re-leasing progress of the 26,110 sq. ft. Jowein retail space to mitigate the $400k annual income loss.
- Chapter 11 Impact: Track the status of the Bond Street tenant's bankruptcy proceedings to assess the risk of $23k/month cash flow reduction.
- Debt Covenants: Review compliance with loan covenants, particularly regarding the $12M multiple draw term loan and the $1M related-party note.
- One-Time Items: Note that the $114k real estate tax recovery is a non-recurring item affecting current period revenue.